Corruption: A Hidden Tax on Growth

By Vitor Gaspar and Sean Hagan

(Versions in Español عربي中文Français日本語, Русскийعربي)

In recent years, citizens’ concerns about allegations of corruption in the public sector have become more visible and widespread. From São Paulo to Johannesburg, citizens have taken to the streets against graft. In countries like Chile, Guatemala, India, Iraq, Malaysia and Ukraine, they are sending a clear and loud message to their leaders: Address corruption!

Policymakers are paying attention too. Discussing corruption has long been a sensitive topic at inter-governmental organizations like the International Monetary Fund. But earlier this month at its Annual Meetings in Lima, Peru, the IMF hosted a refreshingly frank discussion on the subject.  The panel session provided a stimulating debate on definitions of corruption, its direct and indirect consequences, and strategies for addressing it, including the role that individuals and institutions such as the IMF can play. This blog gives a flavor of the discussion.

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Fiscal Impact of Lower Oil Prices on Latin America and the Caribbean

By Robert Rennhack and Fabián Valencia

(Versions in Español and Português)

The plunge in world oil prices—from $105 to about $50 per barrel since mid-2014—has been a boon for oil-importing countries, while presenting challenges for oil exporters.

In general, oil importers will enjoy faster growth, lower inflation, and stronger external positions, and most will not encounter any significant fiscal pressures. Oil exporters will tend to face slower growth and weaker external current account balances and some will run into fiscal pressures, since many rely on direct oil-related revenues. One country that stands out is Venezuela, which had been experiencing severe economic imbalances before oil prices began to fall and now finds itself in an even more precarious position.

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A Big Step Forward for Bolstering Financial Inclusion

By David Marston, Era Dabla-Norris, and D. Filiz Unsal

(version in Español)

Economists are paying increasing attention to the link between financial inclusion—greater availability of and access to financial services—and economic development. In a new paper, we take a closer look at exactly how financial inclusion impacts a country’s economy and what policies are most effective in promoting it.

The new framework developed in this paper allows us to identify barriers to financial inclusion and see how lifting these barriers might affect a country’s output and level of inequality.  Because the more you know about what stands in the way of financial inclusion, the better you can be at designing policies that help foster it.

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Policy Interest Rates in Latin America: Moving to Neutral?

By Nicolas Magud and Evridiki Tsounta 

(Version in Español)

Many Latin American countries have strengthened their monetary policy frameworks in recent years to keep the rate of inflation in check. Some of them have adopted an inflation target and use the policy interest rate as the main tool to achieve that target.

But how do central bankers know whether monetary policy is expansionary or contractionary? Policymakers would need to know how the current policy rate compares to a benchmark or neutral rate.

The neutral interest rate is the real interest rate consistent with the economy operating at full employment and stable inflation. If the economy is operating above its potential capacity and inflation is rising, policymakers should increase the policy interest rate above the neutral level to cool down the economy. Conversely, if the economy is operating below its full employment level, interest rates may need to be lowered below the neutral level.

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